Aviva has had an RLP (relevant life policy) for some time but has now added the option to include critical illness benefits too. Historically, RLPs have only included life cover (and, more recently, terminal illness cover too), but Aviva has reconsidered what can be included in an RLP and the key is the interpretation of Section 393B (3 and 4) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). Full information on why CI cover is allowed on an RLP is set out on Aviva’s adviser website.
Minimum age at entry is 18 and maximum is 64 for an RLP with CI cover (compared to 73 for level life cover and 69 for increasing life cover) and premium rates are guaranteed or reviewable. Cover must end by age 74 (70 if TPD – total permanent disability – is included) and the maximum overall policy term is 50 years. Maximum benefit is £3m (or £2m with TPD).
In terms of the CI cover, Aviva covers over 40 conditions, of which 19 have an ABI+ definition. In addition there are 11 additional conditions that pay out the lower of £25,000 and 25% of the cover amount (or £20K/20% for some additional conditions). The Best Doctors service is also included.
Policies must be written under Aviva’s Relevant Life Trust.
The new RLP option is in addition to other changes Aviva has introduced as part of its wider business protection package.
What They Say
Managing director of protection, Louise Colley, said: “Historically, relevant life policies have tended to only include a death benefit and terminal illness benefit, so I’m delighted that following extensive research and advice from external legal counsel, we are able to offer a fully compliant critical illness benefit on our new Relevant Life Insurance. This is a market first and we believe that it will really help advisers write more protection business more easily.”
What We Say
"Wow – it appears that we have all wrongly assumed that RLPs cannot include other than ‘pure’ life cover (and, more recently, terminal illness cover too).
"Aviva is a blue chip insurer though so if it says it’s OK, it must be... Want further proof? That comes in two forms – first, Aviva sets out its thinking in a detailed adviser guide called ‘How we’ve added critical illness benefit to Relevant Life Insurance’. It’s not that easy to follow the thinking if you’re not used to legal arguments, but it helpfully sets out chapter and verse. Second, Aviva says it has sought advice from external legal counsel. Insurers don’t usually do that (it’s expensive and can be very time consuming…) unless they want to be absolutely sure, so that in itself gives further comfort. Without reading any opinion, we have to assume Aviva asked the right questions (don’t laugh – insurers haven’t always done that, in my experience) but the logic of Aviva’s case looks sound on the face of it.
"It makes logical sense too, inasmuch as CI cover is clearly a health and protection benefit (indeed one of the early descriptors used for CI was that it covered you ‘if you only die a bit’), so it makes sense for HMRC to encourage such cover. Whether that was actually its intention back in 2003 is another matter…
"The net effect though is CI cover available through pension scheme rules and that also means tax relief on premiums.
"Will The Treasury allow this state of affairs to continue? Certainly, it (very) belatedly stopped the outwardly similar Pensions Term Assurance ‘loophole’ a few years ago but equally, life insurance with tax relief and pension benefits for those in ill health have long been part of most group pension schemes, including civil servants’ own scheme, so there isn’t much of a point of principle at stake here either. And, if such schemes are stopped, they probably won’t be stopped retrospectively.
"RLPs have been relatively slow to take-off so far – maybe this is the initiative they need to see much greater business volumes written? Meantime, hats off to Aviva for being cleverer than the rest of us!"